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It means creating jobs.

It means stimulating economic growth.

It means stronger, more prosperous communities.

What would REGULATORY RELIEF

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Year of Transition Regulatory Expectations �e Great Bank Robbery

North Carolina Young BankersMeet the North Carolina Young Bankers Advisory Council









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43Spring 2016 Carolina Banker

PRACTICAL CONSIDERATIONS FOR COMMUNITY BANKS - ENTERPRISE RISK MANAGEMENT

Doug Mims, CPA, is the Financial

Institution Industry partner with Carr,

Riggs & Ingram, LLC.

On October 22, 2012, the Deputy Comp-troller of the Office of the Comptroller of the Currency made some prepared remarks at a community bank enterprise risk management seminar in Washington, D.C. Most thought those remarks were the prelude to Enterprise Risk Management (ERM) becoming the new hot topic in banking with substantial regulatory focus and scrutiny. It was also presumed these heightened expectations would be ac-companied by specific formal guidance for banks both large and small in the form of interagency guidance and the like.

Fast forward to 2016 and you will find many community bankers still searching for guidance and unaware of the benefits of an effective ERM program. This is particu-larly true for community banks with less than $1 billion in assets where the regula-tory expectations have been inconsistent across agencies and assistance with practi-cal solutions the same.

In September of 2004, the Committee of Sponsoring Organizations (COSO or The Committee) of the Treadway Commission published Enterprise Risk Management – Integrated Framework (The Framework). This guidance was designed to expand upon the Committee’s Internal Control In-tegrated Framework (updated in 2013) and provide for a more “robust and extensive focus on the broader subject of enterprise risk management”. In doing so, the Com-mittee created a useful tool for banks and other companies to understand the theoret-ical basis of ERM and provide a structural

foundation on which to build an effective ERM process.

The Framework indicates that ERM en-compasses:• Aligning risk appetite and strategy• Enhancing risk response decisions• Reducing operational surprises and

losses• Identifying and managing multiple

and cross – enterprise risks• Seizing opportunities• Improving deployment of capital

Further, the Framework defines ERM as follows:

“Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enter-prise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to pro-vide reasonable assurance regarding the achievement of entity objectives.”

Several key elements of the above are important in understanding ERM and in the effective application of its principles. The executive summary of the Framework is an excellent overview and quick read for anyone that wants to better understand the foundation of ERM.

The Risk Management Association (RMA) also developed a risk framework that is thought provoking in considering the practical implications of ERM, adapted to

44 Carolina Banker Spring 2016

financial services. The structure of their ERM components is as follows:• Coverage: What are all the risks to our

business strategy and operations?• Risk Appetite: How much risk are we

willing to take?• Governance & Policies: How good are

we at overseeing risk taking?• Risk Data & Infrastructure: How do

we ensure we have the right informa-tion to manage risk?

• Measurement, Evaluation and Com-munication: How do we determine the size and scope of the risk and report the results?

• Control Environment: How well do we manage the risks?

• Response: What are we doing about the risks?

• Stress testing: What else can go wrong and how are risks interconnected?

Furthermore and worthy of note, the foundation of the RMA’s components is “Culture”.

While the aforementioned documents provide a theoretical basis and hopefully “frame” ERM for the reader, they do not provide implementation guidance or “next steps for community banks”. However, there are a number of practical steps a community bank can take to begin de-veloping an efficient and effective ERM process.

Establish a risk committee of the Board of Directors (BOD) or equivalent. The tone at the top drives the bank and ERM is no exception. The BOD has to “buy in” and both facilitate and accept responsibil-ity for a number of key elements of the practical considerations offered below.

Define measurable strategic objectives that are aligned with the bank’s risk ap-petite. Most community banks perform some level of strategic planning. However, a robust ERM process is largely dependent

on an equally robust strategic planning process that establishes clear measurable strategic objectives (business strategy).

Establish the bank’s risk appetite. Risk appetite can also be thought of as “risk tolerance” and is a vital element in de-veloping the bank’s ERM infrastructure. Developing a risk statement is one avenue to clearly articulate the bank’s risk toler-ance but is not an absolute. However, the bank must clearly articulate the amount of risk it is willing to assume to execute its strategy.

Identify an ERM “champion” or equiva-lent. Depending on the size and com-plexity of the institution, consideration of identifying or hiring a Chief Risk Officer is an option. Regardless of title, someone in executive management must “own” ERM and facilitate many of the activities discussed herein.

Establish a management level risk com-mittee. While the BOD must “own” the process, in most instances, management will be the “doers”. The success or failure of the ERM designee will be in large part based on the support he or she receives from executive management. A manage-ment level committee can be an effective means by which to allocate responsibility for tasks and send a clear united message to employees that ERM is inherent in the culture of the bank.

Educate executive management and BOD. Depending on the institution, ERM may still be “out there” for the BOD and executive management. A little practical training as part of a BOD retreat might be in order.

Develop an ERM policy. A robust ERM policy will encompass many of the ele-ments discussed above and provide a clear road map for an effective ERM process.

CB

Perform an enterprise-wide risk assess-ment. Most banks currently have a num-ber of elements of an enterprise wide risk assessment already in place. It may just be a matter of pulling existing risk analyses together, identifying gaps, supplement-ing where necessary and compiling one cohesive document. The resulting analy-sis should be periodically reviewed and approved by the BOD.

Inventory current practices, policies and procedures and identify gaps. Similar to the risk assessment, many of the policies and practices for the ERM program are already in place. They simply need to be identified and brought to-gether in order to identify gaps and build a bridge to ERM.

Measure and monitor on an appropri-ate frequency – develop a dash board. All of the above provides little value if it is not measured and monitored on at least a quarterly basis. Executive manage-

ment and the BOD need to establish the metrics that will allow them to monitor progress towards strategic objectives and measure the relative risk being assumed. Most of this data is readily available and simply needs to be pulled together in a concise manner also known as a “dash board.”

While none of the above considerations are ground breaking, they are hopefully thought provoking for community banks still uncertain as to how to get started or regain momentum in establishing an effective and efficient ERM process. The concepts of formal BOD oversight of risk, robust strategic planning, clearly defining risk tolerance and effective monitoring are sound business practices, regardless of the acronym. After all, effective ERM is not about regulators and policies – it’s about maximizing shareholder value.

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Faces in the News

senior vice president and area supervisor. Nicole Treadwell also joined the bank at the Market of Wake Forest branch as office manager II and banking officer. The bank also an-nounced John T. Winston joined its team in Chapel Hill as senior business development officer.

FIRST CITIZENS

First Citizens Bank announced that it hired David Zim-merman as president of its registered broker-dealer First Citizens Investor Services, Inc. (FCIS).

HOMETRUST BANKHomeTrust Bank Auto Finance Credit Analyst, Randy Ja-noe, completed the National Automotive Finance Associa-tion (NFA) Compliance Certification, created to provide compliance professionals with a solid working knowledge of the federal and state laws and regulations that govern consumer credit.

NORTH STATE BANKChief Credit Officer Brian S. Hedges has been promoted to executive vice president for North State Bank. Hedges has served the bank as chief credit officer since 2011. The bank also announced Jonathan N. Krieps as executive vice presi-dent and chief banking officer. Previously, Krieps served as senior vice president and chief operations officer.

PARAGON BANKParagon Bank announced that two new members have joined the client relationship team at the bank’s Charlotte office. Will H. Bishop joined the team as senior vice presi-dent and client development officer. Rusty Page also joined the bank’s team as senior vice president and business de-velopment officer. The bank also announced the addition of Harvey Schmitt to its corporate board of directors. Schmitt joins 11 other board members dedicated to guid-ing the bank toward continued success.

ROXBORO SAVINGS BANKRoxboro Savings Bank announced the promotion of Keith A. Epstein to vice president and chief credit officer. He will continue performing his duties as commercial and mort-gage lender for the Person and Orange county markets. The bank also announced the hiring of Derek Green to its lending team. Green will focus primarily on commercial, mortgage and consumer lending, along with the bank’s merchant credit card program.

SOUND BANKSound Bank announced the promotion of DeAnna Bous-man to marketing manager for the bank. The bank an-nounced that Shea Byrd joined the Morehead City branch as personal banker. Audrey Christie also joined the bank

Keith A. Epstein

DeAnnaBousman

SheaByrd

AudreyChristie

Betty AnnLilly

HarveySchmitt

DerekGreen

Spence H.Broadhurst

Robin S. Hager

MitchMcKenzie

JohnRutenberg

NateBarrett

Faces in the News

HELP KEEP CAROLINA BANKER

CURRENTAs your bank promotes employees or hires new employees, please remember to send an update and the employee’s headshot to Kathleen Rollinson at [email protected]. This special Faces in the News section in Carolina Banker is designed to showcase these announcements each issue. We truly appreciate your submissions.

HELP KEEP

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Honor Flights

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Pride and Praise

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Keep the NCBA in the loop!

as manager of its new Wilmington branch. Betty Ann Lil-ly was also recently promoted to branch manager of the Morehead City office. Sound Bank announced the hiring of Mitch McKenzie as branch manager of the Cedar Point location.

TD BANKTD Bank announced it has named Nate Barrett as senior middle market relationship manager for the Carolinas. The bank also named John Rutenberg regional vice president for the North Coast market in South Carolina and Wilm-ington, North Carolina.

YADKIN BANKYadkin Bank announced that two NewBridge Bank execu-tives will assume leadership roles with Yadkin Bank when the merger of Yadkin Financial Corporation and New-Bridge Bancorp closes in late quarter one or early quarter two. Spence H. Broadhurst will be Piedmont commercial banking regional president for the combined bank and Robin S. Hager will be chief administrative officer based in Greensboro.

mailto:[email protected]


Around the State

Right: Four Oaks Bank’s new branch facility, located at 115 Four Oaks Place, off of Ashe Street in Dunn, is near-ing completion. Employees of Sign and Awning Systems, Inc. are pictured leveling the new sign they installed in front of the new building. Below: Sound Bank opened its newest full-service branch in Wilmington in January 2016. Pictured below are employees (from left to right) Audrey Christie, branch manager; Korin McPeek, teller; Mark Johnson, New Hanover market executive; and Dalla Twaro, teller.

Above Right: Peter Gwaltney was interviewed by Chris William, executive producer and moderator, for Carolina Business Review, which broadcasts on 22 PBS stations in North and South Carolina. Also featured and interviewed on Peter’s segment were Clifton Rutledge, CEO, Bojangles, and JoAnn Turn-quist, president & CEO, Central Carolina Community Foundation. The segment aired in February across all markets of North Carolina. Left: Paragon Bank, headquartered in Raleigh, hosted its annual holiday party at the Bank in December. Each year, employees, clients, families and friends gather in Paragon’s large lobby to visit with one another and celebrate the com-ing holiday.

66 Carolina Banker Spring 2016

Banks Backing Their Communities

Top Right: First Citizens Bank joined together with nonprofit Teen Cancer America and The Who’s Roger Daltrey to help open the door to better cancer care for young adults. First Citizens Bank is a major sponsor of Teen America, which is designed to increase awareness and support for targeted care and specialized treatment facilities for teen and young adults with cancer. Bottom Right: Volunteers from Paragon Bank, along with volun-teers from the North Carolina Bankers Association (NCBA), spent the Friday before Thanksgiving pre-paring and serving meals for those less fortunate in Raleigh and the surrounding community at a local soup kitchen.

Left: In 2015, the Johnston County offices of Four Oaks Bank joined Farm Bureau Insur-ance to help collect toys for its annual Toy Drive to benefit children in Johnston County. The drive collected more than 800 toys, which were distributed through the Hin-nant Outreach Center during its “Lunch with Santa” event.

Above Left: the little bank, in partnership with funding from the Lookout Foundation, presented a $5,000 check to The Salvation Army of New Bern to provide grocery gift cards for families and toys for children registered for The Salvation Army’s Angel Tree program. The check is part of a gift of $30,000 from the little bank to The Salvation Army that will provide much needed help and new hope to hundreds of family members and individuals in Eastern North Carolina. Above Right: Members of NewDominion Bank’s executive team, Blaine Jackson, Marc Bogan, and Kelly King, were featured on Wilson’s World-WCCB Charlotte News Ris-ing to talk about the bank’s partnership with Classroom Central. Classroom Central is a nonprofit organization that helps students living in poverty effectively learn by collecting and distributing free school supplies. NewDominion donated 1,281 calculators to Classroom Central, which covers schools in Charlotte and its surrounding cities.

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